US lawmakers urged to drop clearinghouse ownership cap

November 20, 2009

U.S. Representative Barney Frank (D-MA) holds a news conference on issues before the House Financial Services Committee on Capitol Hill in Washington, November 3, 2009.  REUTERS/Jonathan Ernst   By Jonathan Spicer
NEW YORK, Nov 20 (Reuters) – NYSE Euronext, LCH.Clearnet, BATS Global Markets and other firms partnered with banks have urged two U.S. legislators to drop a proposed “rigid” cap on dealer ownership of clearinghouses, according to a letter sent this week.


The letter to Representatives Barney Frank and Spencer Bachus, dated Nov. 16 and obtained by Reuters, said “overly restrictive limits on swap dealer ownership will significantly hamper the development of derivatives clearinghouses and execution facilities.”The House Financial Services Committee, which is chaired by Frank, approved a bill last month that included a 20 percent limit on the collective ownership of clearinghouses by dealers or major market participants, to avoid conflicts of interest.

The so-called Lynch Amendment was later dropped due to a procedural error, but Frank said this month he wants to reinsert it during a wider House debate.

The bill is one of two House bills approved to regulate the $450 trillion over-the-counter swaps market, seen as a major cause of the financial crisis. The other, by the Agriculture Committee, had no such dealer ownership cap.

The letter, also signed by trading networks Tradeweb and FXall, said such a cap would dissuade banks from developing and participating in clearinghouses, which stand between swaps traders and are seen as key to bringing transparency and protecting participants from defaults of others.

The cap “would freeze the ability of each of our businesses to evolve, by making it impossible for us to grow or even to decrease the ownership stake that a broker-dealer holds in the business,” the letter said.

NYSE Euronext, which runs the New York Stock Exchange, recently sold a big stake in its U.S. derivatives venue to five banks, including Goldman Sachs Group Inc and Morgan Stanley. LCH.Clearnet, Europe’s top independent clearinghouse, is majority owned by its users.

Banks have a big stake in privately-owned exchange operator BATS, while Tradeweb and FXall are also partly owned by banks. Thomson Reuters Corp is among Tradeweb’s owners.
(Reporting by Jonathan Spicer; editing by Andre Grenon) ((; +1-646-223-6253; Reuters Messaging:

Friday, 20 November 2009 15:12:15RTRS [nN20227589] {EN}ENDS

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